Item 1.01 Entry into a Material Definitive Agreement
On July 5, 2022, a Modification Agreement (the "Modification Agreement") was
entered into by and between North Mill Capital LLC, a Delaware limited liability
company, d/b/a SLR Business Credit ("Lender"), with a place of business at 821
Alexander Road, Suite 130, Princeton, New Jersey 08540, and Optical Cable
Corporation, a Virginia corporation ("Optical"), with its chief executive office
located at 5290 Concourse Drive, Roanoke, Virginia 24019, and Applied Optical
Systems, Inc., a Delaware corporation ("Applied"), with its chief executive
office located at 1700 Capital Avenue, Suite 150, Plano, Texas 75074, and
Centric Solutions LLC, a Delaware limited liability company ("Centric," and
together with Optical and Applied, individually and collectively, "Borrower"),
with its chief executive office at 1700 Capital Avenue, Suite 150, Plano, Texas
75074 to modify the existing Loan and Security Agreement dated as of July 24,
2020 (the "Loan Agreement").
The Loan Agreement sets forth the terms and conditions of an Eighteen Million
Dollar ($18,000,000) Revolving Credit Facility by Lender to Borrower and is set
to expire on July 24, 2023 (the "Expiration Date").
The Modification Agreement provides for (a) a two-year extension of the Initial
Term; (b) a reduction in the dollar amount of the Availability Block; (c) an
increase in the Concentration Percentage for the Accounts of an Account debtor;
(d) a reduction of the Servicing Fee; (e) an increase in the aggregate annual
amount permitted for Borrower's capital expenditures; and (f) the modification
of certain other terms and conditions set forth in the Loan Agreement and other
Loan Documents.
(a) The following definitions in Section 1.1 (Terms) of the Loan Agreement were
modified to read as follows:
Availability Block means, at all times, an amount equal to One Million One
Hundred Fifty Thousand Dollars ($1,150,000).
Eligible Accounts means those Accounts created by Borrower in the ordinary
course of business, which are, and at all times shall continue to be, acceptable
to Lender in all respects, provided that standards of eligibility may be
established and revised from time to time by Lender in Lender's exclusive
judgment. In determining such acceptability and standards of eligibility, Lender
may, but need not, rely on agings, reports and schedules of Accounts furnished
to Lender by Borrower, but reliance thereon by Lender from time to time shall
not be deemed to limit Lender's right to revise its standards of eligibility and
acceptability at any time, as to both Borrower's present and future Accounts. In
general, an Account shall not be deemed eligible unless: (a) the Account debtor
on such Account is, and at all times continues to be, acceptable to Lender and
up to credit limits or standards acceptable to Lender, and (b) such Account
complies in all respects with the representations, covenants and warranties set
forth in this Agreement. Except in Lender's sole discretion, Eligible Accounts
shall not include any of the following: (i) Accounts with respect to which the
Account debtor has failed to pay within ninety (90) days of invoice date, and
all Accounts owed by any Account debtor that has failed to pay twenty-five
percent (25%) or more of its Accounts owed to Borrower within ninety (90) days
of invoice date (except the limitations set forth in this (i) shall not apply
with respect to those Accounts set forth on Schedule 1.1(A); (ii) Accounts with
respect to which the goods sold are sold on a bill and hold basis, a consignment
sale basis, a guaranteed sale basis, a sale or return basis or which contain
other terms by reason of which payment by the Account debtor may be conditional;
(iii) Accounts with respect to which the Account debtor is not a resident of the
United States unless such Accounts are supported by foreign credit insurance or
a letter of credit, in both instances satisfactory, in form and substance, to,
and assigned to, Lender; (iv) Accounts with respect to which the Account debtor
is the United States or any department, agency or instrumentality of the United
States, any State of the United States or any city, town, municipality or
division thereof unless all filings have been made under the Federal Assignment
of Claims Act or comparable state or other statute; (v) Accounts with respect to
which the Account debtor is an officer, employee or agent of, or subsidiary of,
related to, affiliated with or has common shareholders, officers or directors
with Borrower; (vi) Accounts with respect to which Borrower is or may become
liable to the Account debtor for goods sold or services rendered by the Account
debtor to Borrower or otherwise; (vii) Accounts with respect to an Account
debtor whose total obligations to Borrower exceed fifteen percent (15%) of all
Accounts or such other percentage as Lender may agree to in writing as to a
particular Account debtor (such applicable percentage being, the Concentration
Percentage), to the extent such obligations exceed the applicable Concentration
Percentage, provided that with respect to the Account debtors set forth on
Schedule 1.1(B), the Concentration Percentage shall not exceed twenty percent
(20%) or twenty-five percent (25%) (rather than 15%), as set forth on Schedule
1.1(B); (viii) Accounts with respect to which the Account debtor disputes
liability or makes any claim with respect thereto, is subject to any insolvency
proceeding, becomes insolvent, fails or goes out of business; (ix) Accounts
arising out of a contract or purchase order for which a surety bond was issued
on behalf of Borrower; (x) Accounts with respect to which Lender does not have a
first priority and exclusive perfected security interest; (xi) Accounts with
respect to which the Account debtor is in a jurisdiction for which Borrower is
required to file a notice of business activities or similar report and Borrower
has not filed such report within the time period required by applicable law;
(xii) Accounts with respect as to which an invoice has not been issued to the
Account debtor; or (xiii) Accounts which represent a progress or "milestone"
billing on a contract that has not been fully completed by Borrower.
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Termination Date means (a) July 24, 2025 (which represents a two-year extension
of the initial term which would have ended on July 24, 2023 but for such
extension with such extended period now being, the Initial Term) unless such
date is extended pursuant to Section 3.1 hereof, and if so extended on one or
more occasions the last date of the last such extension, or (b) if earlier
terminated by Lender pursuant to Section 9.1 hereof, the date of such
termination.
In connection with the foregoing extension of the Initial Term, all references
to the "Termination Date" in the Revolving Credit Master Promissory Note of
Borrower to the order of Lender and dated July 24, 2020 were deemed to mean July
24, 2025.
(b) In consideration of Lender's agreement to extend the Initial Term of
Revolving Credit Facility:
(i) Borrower agreed to continue to pay to Lender the Facility Fee as set forth
in Section 2.7 (Facility Fee) of the Loan Agreement for the extended Initial
Term, and the following paragraphs were added after paragraph (c)(ii) in
Section 2.07 as follows (and the last paragraph of Section 2.7 shall be
replaced with the last paragraph below):
"(d) (i) For the fourth (4th) contract (loan) year of the Initial Term,
Borrower shall pay to Lender a Facility Fee equal to one percent (1%) of the sum
of (x) the Third Year Benchmark Advance Amount plus (y) any Advances other than
under the Revolving Credit Facility. One twelfth (1/12) of such Facility Fee
shall be paid on August 1, 2023, and the remaining amount shall be paid in
installments of like amount on the first (1st) day of each month thereafter
until paid in full.
(ii) In addition, Borrower shall pay to Lender an additional Facility Fee of
Ten Thousand Dollars ($10,000) at the initial occurrence that the amount owed
under the Revolving Credit Facility during the fourth (4th) contract (loan) year
of the Initial Term exceeds the Third Year Benchmark Advance Amount by each
applicable Increment. The highest Daily Balance of the Revolving Credit Facility
during the fourth (4th) contract (loan) year of the Initial Term (rounded upward
to the next $1,000,000 unless such amount is a multiple of $1,000,000, in which
case, such amount need not be rounded upward), but in no event less than the
Third Year Benchmark Advance Amount, shall hereinafter be referred to as the
Fourth Year Benchmark Advance Amount.
(e) (i) For the fifth (5th) contract (loan) year of the Initial Term,
Borrower shall pay to Lender a Facility Fee equal to one percent (1%) of the sum
of (x) the Fourth Year Benchmark Advance Amount plus (y) any Advances other than
under the Revolving Credit Facility. One twelfth (1/12) of such Facility Fee
shall be paid on August 1, 2024, and the remaining amount shall be paid in
installments of like amount on the first (1st) day of each month thereafter
until paid in full.
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(ii) Borrower agreed to pay to Lender an additional Facility Fee of Ten
Thousand Dollars ($10,000) at the initial occurrence that the amount owed under
the Revolving Credit Facility during the fifth (5th) contract (loan) year of the
Initial Term exceeds the Fourth Year Benchmark Advance Amount by each applicable
Increment. The highest Daily Balance of the Revolving Credit Facility during the
fifth (5th) contract (loan) year of the Initial Term (rounded upward to the next
$1,000,000 unless such amount is a multiple of $1,000,000, in which case, such
amount need not be rounded upward), but in no event less than the Fourth Year
Benchmark Advance Amount, shall hereinafter be referred to as the Fifth Year
Benchmark Advance Amount.
The Facility Fee for the entire Initial Term was deemed to be fully earned upon
the execution of the Agreement and confirmed on the date of the Modification
Agreement. The unpaid balance of the Facility Fee for the entire Initial Term
shall be payable in full on the earlier of (a) termination of this Agreement and
(b) at Lender's option, upon Lender's declaration of an Event of Default. Should
Lender and Borrower agree to continue this Agreement beyond the Initial Term,
both parties shall negotiate the terms of a Facility Fee during any
extension/renewal thereof."
(ii) Section 3.2 (Termination Fee) of the Loan Agreement was deleted in its
entirety and replaced with the following:
"3.2 Termination Fee. If the Term is terminated by Lender upon the occurrence of
an Event of Default or is terminated by Borrower, other than in compliance with
Section 3.1 (Term and Renewal Date) of the Loan Agreement, in view of the
impracticability and extreme difficulty of ascertaining actual damages, and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits, as a result thereof, in addition to payment of all principal, interest,
fees, expenses and other Obligations, Borrower shall pay Lender upon the
effective date of such termination a fee in an amount equal to: (a) (1) two
percent (2%) of the sum of the Second Year Benchmark Advance Amount plus any
Advances by Lender to or on behalf of Borrower other than under the Revolving
Credit Facility, if such termination occurs on or after the date of the
Modification Agreement and on or prior to the July 24, 2022, (2) two percent
(2%) of the sum of the Third Year Benchmark Advance Amount plus any Advances by
Lender to or on behalf of Borrower other than under the Revolving Credit
Facility, if such termination occurs on or after July 25, 2022 and on or prior
to July 24, 2023, and (3) two percent (2%) of the sum of the Fourth Year
Benchmark Advance Amount plus any Advances by Lender to or on behalf of Borrower
other than under the Revolving Credit Facility, if such termination occurs on or
after July 25, 2023 and on or prior to July 24, 2024; (b) one percent (1%) of
the sum of the Fifth Year Benchmark Advance Amount plus any Advances by Lender
to or on behalf of Borrower other than under the Revolving Credit Facility, if
such termination occurs on or after July 25, 2024 and on or prior to March 31,
2025; and (c) one-half percent (0.5%) of the sum of the Fifth Year Benchmark
Advance Amount plus any Advances by Lender to or on behalf of Borrower other
than under the Revolving Credit Facility, if such termination occurs on or after
March 31, 2025 and on or prior to the termination of the Initial Term (which is
currently, July 24, 2025). (Should Lender and Borrower agree to continue this
Agreement beyond the Initial Term (as extended by the Modification Agreement),
both parties shall negotiate the terms of a termination fee during any
extension/renewal thereof.) Such fee shall be presumed to be the amount of
damages sustained by Lender as the result of termination, and Borrower
acknowledges that such fee is reasonable under the circumstances currently
existing. The fee provided for in this Section 3.2 shall be deemed included in
the Obligations. Notwithstanding the foregoing, in the event that Optical is
acquired by a third-party on a date that is on or after the date of the
Modification Agreement, and in connection with such acquisition the Term is
terminated by Borrower in connection with said acquisition, the termination fee
shall be reduced to: (A) (1) one percent (1%) of the sum of the Second Year
Benchmark Advance Amount plus any Advances by Lender to or on behalf of Borrower
other than under the Revolving Credit Facility, if such termination occurs on or
after the date of the Modification Agreement and on or prior to July 24, 2022,
(2) one percent (1%) of the sum of the Third Year Benchmark Advance Amount plus
any Advances by Lender to or on behalf of Borrower other than under the
Revolving Credit Facility, if such termination occurs on or after July 25, 2022
and on or prior to July 24, 2023, (3) one percent (1%) of the sum of the Fourth
Year Benchmark Advance Amount plus any Advances by Lender to or on behalf of
Borrower other than under the Revolving Credit Facility, if such termination
occurs on or after July 25, 2023 and on or prior to July 24, 2024, and (4) one
percent (1%) of the sum of the Fifth Year Benchmark Advance Amount plus any
. . .
Item 9.01 Financial Statements and Exhibits
(c) Exhibits
The following are filed as Exhibits to this Report.
Exhibit No. Description of Exhibit
4.1 Modification Agreement dated as of July 5, 2022, by and between North
Mill Capital LLC, a Delaware limited liability company, d/b/a SLR
Business Credit, and Optical Cable Corporation, Applied Optical Systems,
Inc., and Centric Solutions LLC. (FILED HEREWITH)
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